Tax Talk

I want to gift my shares of a private limited company to my sister. The shares were allotted to me at par Rs 10. Will gifting them to my sister attract any tax ?

— Rakesh

Yes, you can gift the shares of the private limited company to your sister provided such transfer is allowed under the Articles of Association of the private company. According to the tax laws, any property (including shares) received from a relative as gift is exempt from tax in the hands of the transferee.

The term relative also includes brother and sister. Hence, the sum (i.e. value of shares) gifted by you to your sister shall be tax exempt in your sister’s hands. Please note that the transfer may be subject to stamp duty which varies from State to State.

Further, any transaction of gift of shares is not regarded as a transfer according to the tax provisions and hence not chargeable to tax in the hands of the transferor, that is, you, provided that the shares were not allotted to you by your employer under an employee stock option plan or scheme (for which there are different tax provisions).

I am employed at Bhubaneshwar and live in a rented house there. My family lives in Rourkela in a house which I purchased with a loan. Can I claim deduction from income towards house rent paid in Bhubaneshwar and interest on house in Rourkela? I paid Rs 50,000 as interest on loan.

— B. Kishore

According to the Income-tax provisions, house rent allowance paid to an assessee by his employer to meet expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee, shall be exempt up to the prescribed limits.

The following conditions have been attached for claiming this exemption:

Residential accommodation occupied by the assessee is not owned by him; and

Assessee has actually incurred expenditure on payment of rent

Hence, you can claim the said exemption for the house you are currently residing in and paying rent for if you satisfy the above conditions.

According to the Income-tax provisions where the property is occupied by the owner for his residence or it cannot actually be occupied by the owner, owing to his employment at any other place and he has to reside at another place in a building not belonging to him, the annual value of such house shall be taken to be nil.

Further where the property has been acquired with borrowed capital, the amount of any interest payable on such capital shall be allowed as deduction up to a maximum Rs 1,50,000 provided that the property is acquired with capital borrowed on or after April 1, 1999.

Based on the above, the annual value of the house in Rourkela will be taken as nil. Further, you can claim the deduction of the interest paid amounting to Rs 50,000 on the housing loan for this house under the head ‘Income from House Property’.

The resultant loss can be set off against your other income heads subject to the conditions of set off of loss.

Therefore, interest on home loan can be claimed, irrespective of the fact that you are claiming HRA exemption, as long as the conditions mentioned in the law are met.

(The author is a practising chartered accountant)

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